Market Fades the spike higher in US Yields and USD index on CPI release

Yesterday, we saw the release of Tier 1 data out of the U.S wherein Headline CPI rose 3.30% yoy and the Core CPI rose 3.90%. See the table below for details:

Snapshot	Index	YoY	MoM	Prior YoY	Prior MoM
Headline CPI	308.85	3.30%	0.30%	3.12%	0.10%
Core CPI	313.22	3.90%	0.31%	3.99%	0.28%
OER	400.50	6.35%	0.47%	6.68%	0.50%
Rent of Primary Residences	410.16	6.47%	0.42%	6.87%	0.48%
Shelter	390.04	6.17%	0.46%	6.53%	0.45%
Services	393.21	4.95%	0.46%	5.18%	0.54%

On the release of the data, USD caught a bid. However, as markets digested the number, the move higher in USDs and UST yields was faded. The 3m rise in headline CPI was at 0.45% which was the lowest since June 2020. The index for Shelter contributed over half of the monthly rise.

As WSJ writes, "Based on Thursday’s report, private-sector forecasters say the Fed’s preferred gauge is likely to show core prices rose by around 0.2% in December from November, a level consistent with the Fed’s target." On Friday, markets will get the release of PPI index.

USTs have been fairly anchored at the support levels. Yields on US2s over the last week at 4.49% and yields on the long end of the curve - US10s at 4.10% and US30s at 4.25% - have offered resistance. The US2s10s Spread bull steepened 5.30 bps. The Implied market pricing off Fed Fund Futures is now pricing in 151 bps of Rate Cuts from previous day morning reading of 139 bps of Rate Cuts.

Yields	High	Low	Close	DoD ▲
US 2Y	4.39	4.25	4.25	-11.50
US10Y	4.07	3.97	3.97	-6.20
US2s10s	-0.28	-0.33	-0.28	5.30
US30Y	4.25	4.16	4.18	-3.20
JGB 10Y	0.62	0.59	0.59	0.60
DE10Y	2.23	2.16	2.23	4.40

The Initial (IJC) and Continuing Jobless Claim (CJC) numbers fell. 202K IJC were filed ( prior 202K) and CJC fell towards 1.834M (prior 1.855M).

We are seeing soft landing narrative play out as inflation readings soften and unemployment numbers hold well.

Comments

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